Our GFC hangover doesn't come with the boom of rebuilding

Household debt levels are a record high and still rising, and inflation is running at the top of the Reserve Bank's target range.

Yet, interest rates are at historic lows with no increase in sight.

It's all a hangover from the Global Financial Crisis. In a way, the GFC was as much an economic catastrophe as World War II was- the main difference is the building boom that followed the end of hostilities in 1945.

Now, there are no buildings to repair, just balance sheets.

This does highlight the challenges facing our Reserve Bank now, as they try to cool off an overheated property market.

Governor Glenn Stevens has already pointed out that there is no point in making any further rate cuts as rates have become so low that any further reductions are now ineffective as a stimulatory tool.

The Australian housing market is one of the most overvalued in the world, but you can't put a brake on it by raising rates by a small amount.

Think about it - if you came across an undervalued asset now, even an extra one percent interest wouldn't stop you buying it.

You could stop the property market dead in its tracks with a large rate rise, but the outcome would be unthinkable. There would be a string of repossessions as first home buyers lost their homes.

Even though the Reserve Bank is concerned about the number of low deposit loans written, it is not practicable to insist that property buyers have a larger equity.

It would simply force first home buyers out of the market, leaving the space to investors who would simply increase their equity by mortgaging other investment properties they own.

So our Reserve Bank remains stuck between a rock and a hard place.

They could go back to the old days and restrict the amount of money the banks could lend for housing, but this could be easily circumvented by the use of non bank lenders and offshore borrowings.

At the end of the day, it's buyer beware - anyone who buys into a boom must have an exit strategy when the music stops.

Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. His advice is general in nature and readers should seek their own professional advice before making any financial decisions. Email: noelwhit@gmail.com.